The dollar is retreating

June 18, 2015

The EUR/USD continues to analyze what the Fed said the day before, and the situation is not in favour of the dollar. The June meeting of the Federal Reserve System provided much food for thought. It is what was expected, and market reactions were even more reserved than they could have been.

Thus, the interest rate was left unchanged. The economic forecasts are markedly lowered. Now it is expected that the average value of the interest rate by the end of 2016 will amount to 1.6%, and by the end of 2017 - 2.8%. This is so normal, that these figures are not paid any special attention. 15 of the 17 heads of the Fed expected a rate hike before the end of 2015, and two predict its growth in 2016. Here, the alignment of forces has not changed in three months.

The forecasts for GDP dynamics look very restrained. This year, the US economy has a chance to expand by 1.8-2.0%, in 2016 the GDP growth will amount to 2.7%, and in 2017 an increase of 2.1-2.5% is not ruled out.

The situation with inflation remains as poor and hopeless as ever. At least until 2017, CPI will remain below the target level of 2%. The unemployment rate is expected in the range of 5-5.2% in the long term. Here the expectations did not change.

In comments after the meeting the head of the US Federal Reserve Janet Yellen said that the labour market is stable and shows improvement, but the movement is slower than we would like to see. Few people paid attention to her remarks that the employment in the sector remains in a "cyclical weakness", and this is really important. Time for a first rate hike has not come yet, but we should not overestimate the importance of this moment, Yellen said. She must have been appealing to investors, but what will the capital market focus on, if not at the rate?

In general, for now everything remains in place. The Fed is not ready to tighten its monetary policy, seeing a lagging of the economy against their expectations. The dollar weakened temporarily, but this is unlikely to last more than a couple of days.
 
RoboForex Analytical Department

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